TIDM31PE

RNS Number : 8107B

Canary Wharf Finance II PLC

23 April 2012

CANARY WHARF FINANCE II PLC

23 APRIL 2012

PUBLICATION OF THE ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 DECEMBER 2011

Pursuant to sections 4.1 and 6.3.5 of the Disclosure and Transparency Rules, the board of Canary Wharf Finance II plc is pleased to announce the publication of its annual financial report for the year ended 31 December 2011, which will shortly be available from www.canarywharf.com/Investor Relations.

The information contained within this announcement, which was approved by the board of directors on 23 April 2012, does not comprise statutory accounts within the meaning of the Companies Act 2006 and is provided in accordance with section 6.3.5(2)(b) of the Disclosure and Transparency Rules.

Two copies of the 31 December 2011 Annual Financial Report will be submitted to the UK Listing Authority ("UKLA") in accordance with Paragraph 9.6.1 of the Listing Rules. The document will shortly be available for inspection on the National Storage Mechanism's website, www.hemscott.com/nsm.do.on

Dated: 23 April 2012

Contact for queries:

J R Garwood

Company Secretary

Canary Wharf Finance II plc

Telephone: 020 7418 2000

BUSINESS REVIEW

The following business review aims to provide shareholders with an overall summary of the business of the company as at 31 December 2011 and during the year then ended. The main factors likely to affect the future development, performance and position of the business of the company are set out in the principal risks and uncertainties section of this Management Report.

This business review should be read in conjunction with the remainder of the Management Report, the Directors' Report and the financial statements.

At 31 December 2011, the company had GBP2,404,524,881 (2010: GBP2,462,057,521) of notes listed on the London Stock Exchange and had lent the proceeds to a fellow subsidiary undertaking, CW Lending II Limited. The notes are secured on seven properties at Canary Wharf, owned by fellow subsidiary undertakings, and the rental income therefrom.

The securitisation has the benefit of an agreement with AIG which covers the rent in the event of a default by the tenant of 33 Canada Square over the entire term of its lease. AIG has posted GBP269.6 million as cash collateral in respect of this obligation.

The company also has the benefit of a GBP300.0 million liquidity facility provided by Lloyds Bank plc, under which drawings may be made in the event of a cash flow shortage under the securitisation.

Following publication of its latest criteria for assessing counter party risk in all new and existing structured finance securities and covered bonds, Standard and Poor's Financial Services LLC ('S&P') duly downgraded the notes on 15 July 2011. Following this downgrade, the ratings of the notes were as follows:

 
Class                                 Moody's                               Fitch                                 S&P 
------------------------------------  ------------------------------------  ------------------------------------  ---------------------------------- 
A1                                    Aaa                                   AAA                                   A+ 
A3                                    Aaa                                   AAA                                   A+ 
A7                                    Aaa                                   AAA                                   A+ 
B                                     A1                                    AA                                    A+ 
B3                                    A1                                    AA                                    A+ 
C2                                    Baa1                                  A                                     A 
D2                                    Ba1                                   BB                                    BBB 
 

On 31 January 2012, S&P placed the notes on negative credit watch.

As shown in the company's profit and loss account, the company's loss after tax for the year was GBP74,698,580 (2010: GBP16,861,190). This included an unrealised fair value loss on derivative financial instruments of GBP75,899,197 (2010: gain of GBP18,118,645).

The balance sheet shows the company's financial position at the year end and indicates that net liabilities were GBP276,183,538 (2010: GBP122,749,050).

The financial position of the company as indicated by its balance sheet is impacted by the application of Financial Reporting Standard 26 (Financial Instruments: Recognition and Measurement) ('FRS26') and its impact on other financial reporting standards. Adjusting for the effects of FRS26 the net asset value of the company at 31 December 2011 was as follows:

 
                                                                                     31 December                                           31 December 
                                                                                            2011                                                  2010 
                                                                                             GBP                                                   GBP 
Net liabilities per statutory balance 
 sheet                                                                             (276,183,538)                                         (122,749,050) 
Add back: Effects of FRS26                                                           280,146,796                                           126,478,135 
                                            ----------------------------------------------------  ---------------------------------------------------- 
Adjusted net assets                                                                    3,963,258                                             3,729,085 
                                            ====================================================  ==================================================== 
 
 

KEY PERFORMANCE INDICATORS

 
                                              31 December    31 December 
                                                     2011           2010 
                                                      GBP            GBP 
Securitised debt                            2,404,524,881  2,462,057,521 
Financing cost (before adjustments for 
 FRS26)                                       146,446,701    150,011,694 
Adjusted profit before tax and FRS26              234,172        251,619 
 
 
 
Weighted average maturity of debt   15.9 years  16.5 years 
Weighted average interest rate            6.2%        6.2% 
 

The adjusted profit before tax comprises the loss on ordinary activities before tax of GBP74,698,580 (2010: GBP16,861,190) adjusted for the FRS 26 items listed in Note 3, totalling GBP74,932,752 (2010: GBP17,112,809).

PRINCIPAL RISKS AND UNCERTAINTIES

The risks and uncertainties facing the business are monitored through continuous assessment, regular formal quarterly reviews and discussion at Canary Wharf Group plc audit committee and board level. Such discussion focuses on the risks identified as part of the system of internal control which highlights key risks faced by the company and allocates specific day to day monitoring and control responsibilities to management. As a member of Canary Wharf Group, the current key risks of the company include the cyclical nature of the property market, concentration risk and financing risk.

Cyclical nature of the property market

The valuation of the Canary Wharf Group's assets is subject to many external economic and market factors. The turmoil in the financial markets in recent years has been reflected in the property market by such factors as a significant decline in tenant demand for space in London, the oversupply of available space in the office market and changing market perceptions of property as an investment resulting in fluctuations in property valuations in general. Fears of an oversupply of available space in the market have however been mitigated by the difficulty in securing finance for speculative development and reduced demand. The market has also been assisted by the continuing presence of overseas investors attracted by the relative transparency of the real estate market in London which is viewed as both stable and secure. Changes in financial and property markets are kept under constant review so that the company can react appropriately and tailor its business accordingly. While the company has no direct exposure to the Euro, the ongoing uncertainty reflecting issues in the macroeconomy, particularly relating to the Eurozone, continues to impact the real estate market. The impact of these uncertainties is closely monitored.

Concentration risk

The majority of Canary Wharf Group's real estate assets are currently located on or adjacent to the Canary Wharf Estate with a majority of tenants linked to the financial services industry. Wherever possible steps are taken to mitigate or avoid material consequence arising from this concentration and to diversify the tenant base.

Financing risk

The broader economic cycle inevitably leads to movements in inflation, interest rates and bond yields.

The company holds debenture finance, at both fixed and floating rates and uses interest rate swaps or caps to modify exposure to interest rate fluctuations. All of the company's borrowings are fixed after taking account of interest rate hedges. All borrowings are denominated in sterling and the company has no intention to borrow amounts in currencies other than sterling.

The company enters into derivative financial instruments solely for the purposes of hedging its financial liabilities. No derivatives are entered into for speculative purposes.

The company is not subject to externally imposed capital requirements.

The company's securitisation is subject to to a maximum loan minus cash to value ('LMCTV') ratio covenant.

The maximum LMCTV ratio is 100.0%. Based on the 31 December 2011 valuations of the properties upon which the company's notes are secured, the LMCTV ratio at the interest payment date in January 2012 would have been 72.5%. The securitisation is not subject to a minimum interest coverage ratio.

A breach of covenant can be remedied by depositing eligible investments (including cash).

Exposure Management

The mark-to-market positions of all the company's derivatives are reported to the Group Treasurer on a monthly basis and to the directors on a quarterly basis. The Group Treasurer monitors hedging activity on an ongoing basis, in order to notify the directors of any overhedging that may potentially occur and proposals to deal with such events.

Hedging Instruments and Transaction Authorisation

Instruments that may be used for hedging interest rate exposure include:

-- Interest rate swaps

-- Interest rate caps, collars and floors

-- Gilt locks

Instruments that may be used for managing foreign exchange exposure include:

-- Cross currency swaps

-- Spot and forward foreign exchange contracts

No hedging activity is undertaken without explicit authority of the board.

Transaction Accounting

Under FRS26, all derivatives are required to be measured on balance sheet at fair value (mark-to-market).

Certain derivatives may be designated as part of a hedge relationship, whereby the derivative and the underlying hedged item (financial instrument) are accounted for in a manner in order to reduce profit and loss account volatility ("hedge accounting").

In order to apply hedge accounting, the company must comply with the following procedures:

-- All hedge relationships proposed must be in line with the company's risk management policy stated above.

-- All hedge relationships must be documented in advance, stating the purpose, including the nature of the risk being hedged, the type of hedge being undertaken, the item being hedged and the related hedging instrument and the methodology to be adopted to assess and measure the hedge effectiveness.

-- Provide supporting documentation to include excerpts from loan or debenture issuance documentation, detailing principal and amortisation schedules and relevant excerpts from hedging derivative documentation.

-- Both prospective and retrospective effectiveness testing are undertaken and approved by the Group Financial Controller.

Credit Risk

The group's policies restrict the counterparties with which derivative transactions can be contracted and cash balances deposited. This ensures that exposure is spread across a number of approved financial institutions with high credit ratings.

All other debtors are receivable from other group undertakings.

PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 2011

 
       Year Ended   Year Ended 
      31 December  31 December 
             2011         2010 
Note          GBP          GBP 
 
 
Administrative 
 expenses                                                    (16,950)                                              (14,100) 
                 ----------------------------------------------------  ---------------------------------------------------- 
OPERATING LOSS                                               (16,950)                                              (14,100) 
 
 
Interest 
 receivable 
 and 
 similar 
 income      2                                         146,697,823                                           150,277,413 
Interest 
 payable 
 and 
 similar 
 charges     3                                       (221,379,453)                                         (167,124,503) 
              ----------------------------------------------------  ---------------------------------------------------- 
LOSS ON 
 ORDINARY 
 ACTIVITIES 
 BEFORE 
 TAXATION                                             (74,698,580)                                          (16,861,190) 
 
 
Tax on loss on ordinary activities   4-- 
 
 
                   ---------------------------------------------------  ---------------------------------------------------- 
LOSS ON 
 ORDINARY 
 ACTIVITIES 
 AFTER 
 TAXATION 
 FOR THE 
 YEAR        9                                            (74,698,580)                                          (16,861,190) 
              ========================================================       =============================================== 
 

Movements in reserves are shown in Note 9 of these financial statements.

All amounts relate to continuing activities in the United Kingdom.

The Notes numbered 1 to 11 form an integral part of these financial statements.

STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES FOR THE YEAR ENDED 31 DECEMBER 2011

 
 Year Ended   Year Ended 
31 December  31 December 
       2011         2010 
        GBP          GBP 
 
 
Loss for the 
 financial 
 year                                                 (74,698,580)                                          (16,861,190) 
Fair value 
 movement on 
 effective 
 hedging 
 instruments                                          (93,297,336)                                          (38,123,761) 
Interest 
 paid on 
 effective 
 hedging 
 instruments                                            15,527,873                                            16,144,271 
Hedge 
 reserve 
 recycling                                               (966,445)                                           (1,005,836) 
              ----------------------------------------------------  ---------------------------------------------------- 
Total 
 recognised 
 losses 
 relating to 
 the 
 year                                                (153,434,488)                                          (39,846,516) 
              ====================================================   =================================================== 
 

The Notes numbered 1 to 11 form an integral part of these financial statements.

BALANCE SHEET AT 31 DECEMBER 2011

 
                                                            31 December                                             31 December 
                                                                   2011                                                    2010 
             Note                                                   GBP                                                     GBP 
 
CURRENT ASSETS 
Debtors         5 
 Amounts 
  falling due 
  after 
  one year                                                2,417,462,612                                           2,476,097,668 
 Amounts 
  falling due 
  within 
  one year                                                   87,309,045                                              88,243,855 
Cash at bank    6                                             1,796,036                                               1,554,889 
                   ----------------------------------------------------    ---------------------------------------------------- 
                                                          2,506,567,693                                           2,565,896,412 
CREDITORS: 
 Amounts 
 falling 
 due within 
 one year       7                                          (85,141,821)                                            (86,069,657) 
                   ----------------------------------------------------    ---------------------------------------------------- 
NET CURRENT 
 ASSETS                                                   2,421,425,872                                           2,479,826,755 
                   ----------------------------------------------------    ---------------------------------------------------- 
TOTAL ASSETS LESS 
 CURRENT 
 LIABILITIES                                              2,421,425,872                                           2,479,826,755 
 
CREDITORS: 
 Amounts falling 
 due 
 after more than 
 one year 8                                             (2,697,609,410)                                         (2,602,575,805) 
                   ----------------------------------------------------    ---------------------------------------------------- 
NET LIABILITIES                                           (276,183,538)                                           (122,749,050) 
                    ===================================================    ==================================================== 
 
CAPITAL AND 
RESERVES 
Called-up share 
 capital                                                         50,000                                                  50,000 
Hedging reserve 9                                         (134,438,689)                                            (55,702,781) 
Profit and loss 
 account 9                                                (141,794,849)                                            (67,096,269) 
                   ----------------------------------------------------    ---------------------------------------------------- 
SHAREHOLDER'S 
 DEFICIT 10                                               (276,183,538)                                           (122,749,050) 
                   ====================================================  ====================================================== 
 
 

The Notes numbered 1 to 11 form an integral part of these financial statements.

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011

   1.     PRINCIPAL ACCOUNTING POLICIES 

This announcement does not constitute the company's statutory accounts for the year ended 31 December 2011 but is derived from those accounts. The statutory accounts for the year ended 31 December 2011 will be delivered to the Registrar of Companies following the company's annual general meeting. The auditors have reported on those accounts and their report was unqualified, did not contain a reference to any matters to which the auditors drew attention by way of emphasis without qualifying the report and did not contain statements under sections 498(2) or (3) of the Companies Act 2006.

This announcement has been prepared on the basis of the accounting policies set out in the company's financial statements for the year ended 31 December 2011 which are prepared in accordance with UK generally accepted accounting principals. Such accounting policies have been applied consistently in all material respects throughout the current and previous years.

In accordance with the provisions of FRS 1 (Revised) the company is exempt from the requirements to prepare a cash flow statement, as it is a wholly-owned subsidiary of Canary Wharf Group plc, which has prepared a consolidated cash flow statement.

GOING CONCERN

The directors are required to prepare the financial statements for each financial year on a going concern basis, unless to do so would not be appropriate. Having made requisite enquiries, the directors have a reasonable expectation that the company has adequate resources to continue its operations for the foreseeable future and hence the financial statements have been prepared on that basis.

At 31 December 2011 the company had a deficit of GBP276,183,538 attributable solely to the adoption of FRS26. Under the requirements of the standard the company recognises the fair value of its derivative financial instruments in the balance sheet. In the event that the company were to realise the fair value of the derivative financial instruments, it would have the right to recoup its losses as a repayment premium on its loans to CW Lending II Limited. The standard does not permit this potential asset to be accounted for in conjunction with the hedges. Notwithstanding the deficit in net assets resulting from the treatment of derivative financial instruments required by FRS26, the directors have prepared the financial statements on a going concern basis on the grounds that the company will be able to meet its obligations as they fall due for a period of not less than 12 months from the date of the financial statements.

The directors have also reached the view that the value of the company's assets at the balance sheet date was not less than the amount of its liabilities for the purposes of Section 123(2) of the Insolvency Act 1986.

   2.     INTEREST RECEIVABLE AND SIMILAR INCOME 
 
                                                           Year Ended                                            Year Ended 
                                                          31 December                                           31 December 
                                                                 2011                                                  2010 
                                                                  GBP                                                   GBP 
Bank interest 
 receivable                                                    23,563                                                16,892 
Interest 
 receivable 
 from group 
 undertakings                                             146,674,260                                           150,260,521 
                 ----------------------------------------------------  ---------------------------------------------------- 
                                                          146,697,823                                           150,277,413 
               ======================================================  ==================================================== 
 
   3.     INTEREST PAYABLE AND SIMILAR CHARGES 
 
                                                                                     Year Ended                                               Year Ended 
                                                                                    31 December                                              31 December 
                                                                                           2011                                                     2010 
                                                                                            GBP                                                      GBP 
Interest payable on securitised debt                                                146,446,701                                              150,011,694 
Fair value adjustments on derivative 
 financial instruments                                                               75,899,197                                               18,118,645 
Hedge reserve recycling (Note 9)                                                      (966,445)                                              (1,005,836) 
                                           ----------------------------------------------------     ---------------------------------------------------- 
                                                                                    221,379,453                                              167,124,503 
                                         ======================================================  ======================================================= 
 
 

Included in the interest payable on securitised debt is GBP1,759,529 (2010: GBP1,571,467) payable in respect of notes acquired by a fellow subsidiary undertaking (Note ).

   4.     TAXATION 
 
 Year Ended   Year Ended 
31 December  31 December 
       2011         2010 
        GBP          GBP 
 

Current tax:

 
UK corporation 
tax                                                                 -                                                - 
                  ===================================================  =============================================== 
 

Tax reconciliation:

 
Loss on 
 ordinary 
 activities 
 before 
 tax                                                  (74,698,580)                                         (16,861,190) 
             =====================================================  =================================================== 
 
 
Tax on loss on ordinary activities 
 at UK Corporation tax rate of 26.5% 
 (2010: 28.0%)                         (19,795,124)  (4,721,133) 
 

Effects of:

 
FRS26 
 adjustments                                            19,857,179                                             4,791,587 
Group relief                                              (62,056)                                              (70,453) 
              ----------------------------------------------------  ---------------------------------------------------- 
Total tax 
 charge on 
 loss on 
 ordinary 
 activities                                                      -                                                     - 
               ===================================================    ================================================== 
 

The tax rate of 26.5% has been calculated by reference to the current corporation tax rate of 26% which was in effect for the final three quarters of the year and the previous rate of 28% which was in effect for the first quarter of the year.

No provision for corporation tax has been made since the taxable profit for the year will be covered by the group relief expected to be made available to the company by other companies in the group. No charge will be made by other group companies for the surrender of group relief. There is no unprovided deferred taxation.

   5.     DEBTORS 
 
31 December  31 December 
       2011         2010 
        GBP          GBP 
 

Due within one year:

 
Loan to 
 fellow 
 subsidiary 
 undertaking                                             85,163,912                                            86,109,563 
Amounts owed 
 by fellow 
 subsidiary 
 undertakings                                             2,142,162                                             2,132,406 
Accrued 
 interest 
 receivable                                                   2,971                                                 1,886 
               ----------------------------------------------------  ---------------------------------------------------- 
                                                         87,309,045                                            88,243,855 
                ===================================================   =================================================== 
 

Due after more than one year:

 
Loan to 
 fellow 
 subsidiary 
 undertaking                                          2,417,462,612                                      2,476,097,668 
               ====================================================  ================================================= 
 

The loans to a fellow subsidiary undertaking bear fixed rates of interest between 5.31% and 6.81% and are repayable in instalments between 2005 and 2035.

Other amounts owed by group companies are non-interest bearing.

The amount of the loan due within one year comprises GBP27,631,272 (2010: GBP28,576,923) of interest and GBP57,532,640 (2010: GBP57,532,640) of capital.

The carrying values of debtors due within one year also represent their fair values. The fair value of the loans to group undertakings at 31 December 2011 was GBP2,645,798,000 (2010: GBP2,564,980,000), calculated by reference to the fair values of the company's financial liabilities. The carrying value of financial assets represents the company's maximum exposure to credit risk.

   6.     FINANCIAL ASSETS 

The company's financial assets comprise loans to fellow group undertakings, cash at bank and derivative financial instruments.

Cash at bank totalled GBP1,796,036 at 31 December 2011 (2010: GBP1,554,889), comprising GBP1,786,927 in Sterling (2010: GBP1,545,701), GBP2,027 (EUR2,432) in Euros (2010: GBP2,094/EUR2,432) and GBP7,082 (US$11,012) in US Dollars (2010: GBP7,094/$11,012), all of which was held as cash collateral for the company's borrowings and has a term of one month or less.

Cash at bank earns interest at floating rates linked to bank deposit rates.

   7.     CREDITORS: Amounts falling due within one year 
 
31 December  31 December 
       2011         2010 
        GBP          GBP 
 
 
Securitised 
 debt                                                   85,132,221                                            86,062,607 
Accruals and 
 deferred 
 income                                                      9,600                                                 7,050 
              ----------------------------------------------------  ---------------------------------------------------- 
                                                        85,141,821                                            86,069,657 
               ===================================================  ==================================================== 
 

The amount of the securitised debt due within one year comprises GBP27,599,581 (2010: GBP28,529,967) of interest and GBP57,532,640 (2010: GBP57,532,640) of capital.

   8.     CREDITORS: Amounts falling due after more than one year 
 
                                                          31 December                                            31 December 
                                                                 2011                                                   2010 
                                                                  GBP                                                    GBP 
Securitised 
 debt                                                   2,417,462,614                                          2,476,097,670 
Derivative 
 financial 
 instruments                                              280,146,796                                            126,478,135 
                 ----------------------------------------------------   ---------------------------------------------------- 
                                                        2,697,609,410                                          2,602,575,805 
              =======================================================  ===================================================== 
 

The securitised debt has a face value of GBP2,404.5m (2010: GBP2,462.1m) of which GBP1,678.5m (GBP2009: GBP1,736.1m) carries fixed rates of interest between 5.95% and 6.80%. The other GBP726.0m (2009: GBP726.0m) carries floating rates of interest at LIBOR plus a margin. The company uses interest rate swaps to hedge exposure to the variability in cash flows on floating rate debt caused by movements in market rates of interest. The hedged rates of the floating rate notes, including margins, are between 5.30% and 6.74%.

The amounts at which borrowings are stated comprise:

 
31 December  31 December 
       2011         2010 
        GBP          GBP 
 
 
Brought 
 forward                                              2,533,630,310                                         2,592,442,295 
Repaid in 
 year                                                  (57,532,640)                                          (57,532,640) 
Amortisation 
 of issue 
 premium                                                (4,668,591)                                           (4,847,330) 
Accrued 
 financing 
 expenses                                                 3,566,175                                             3,567,985 
               ----------------------------------------------------  ---------------------------------------------------- 
Carried 
 forward                                              2,474,995,254                                         2,533,630,310 
                ===================================================    ================================================== 
 
 
Payable 
 within 
 one year 
 or on 
 demand                                               57,532,640                                            57,532,640 
Payable 
 after 
 more than 
 one year                                          2,417,462,614                                         2,476,097,670 
            ----------------------------------------------------  ---------------------------------------------------- 
                                                   2,474,995,254                                         2,533,630,310 
            ====================================================    ================================================== 
 

Certain of the A1, A3 and B notes were issued at a premium which is being amortised to the profit and loss account on a straight-line basis over the life of the relevant notes. At 31 December 2011 GBP53,736,887 (2010: GBP58,405,478) remained unamortised.

At 31 December 2011 there were accrued financing costs of GBP16,733,486 (2010: GBP13,167,311) relating to future increases in margins as described below.

GBP119,778,000 of the notes, comprising GBP26,101,000 of B3 notes, GBP35,338,000 of C2 notes and GBP58,339,000 of D2 notes, were acquired by a fellow subsidiary undertaking in 2009. These notes remain in issue and have not been cancelled.

The notes are secured on seven properties at Canary Wharf, owned by fellow subsidiary undertakings, and the rental income stream therefrom.

During the prior year, two of the seven properties on which the notes are secured, 25 Bank Street and 50 Bank Street, were withdrawn from the securitisation and substituted with 10 Cabot Square and 20 Cabot Square. In conjunction with this substitution GBP65.7m was added to cash collateral held by CW Lending II Limited to cover any shortfall in debt service.

Prior to withdrawing 25 Bank Street, the securitisation had the benefit of a loan facility agreement with AIG which provided for any shortfall in contracted rents under the Lehman lease in the event of a default by Lehman, the tenant of 25 Bank Street. In November 2010, terms were agreed with AIG for the termination of this facility.

Separately, the securitisation continues to have the benefit of an arrangement with AIG which covers the rent in the event of a default by the tenant of 33 Canada Square, over the entire term of its lease. AIG has posted GBP269.6m as cash collateral in respect of this obligation.

The company also has the benefit of a GBP300.0m liquidity facility provided by Lloyds, under which drawings may be made in the event of a cash flow shortage under the securitisation. This facility is renewable annually.

The annual fees payable in respect of the above arrangement currently totals GBP3.7m.

The market value of the securitised debt at 31 December 2011 was GBP2,365.6m (2010: GBP2,441.7m).

The weighted average maturity of the debentures at 31 December 2011 was 15.9 years (2010: 16.5 years).

After taking into account the interest rate hedging arrangements, the weighted average interest rate of the company at 31 December 2011 was 6.2% (2010: 6.2%).

At 31 December 2011 the fair value of the interest rate derivatives resulted in the recognition of a net liability of GBP280,146,796 (2010: GBP126,478,135). Of this net liability GBP144,249,954 (2010: GBP66,480,490) was in respect of interest rate swaps which qualify for hedge accounting and GBP135,896,842 (2010: GBP59,997,645) was in respect of interest rate swaps and collars which do not qualify for hedge accounting.

The fair values of the derivative financial instruments have been determined by reference to market values provided by the relevant counter party and have been classified as level 2, as defined in accordance with FRS 29 Financial Instruments: Disclosures.

The terms of the derivative financial instruments correlate with the terms of the financial instruments to which they relate. Consequently the cash flows and effect on profit or loss are expected to arise over the term of the financial instrument set out above.

   9.     RESERVES 
 
                                                                                                                                   Profit and 
                                                                       Hedging reserve                                           loss account                                                  Total 
                                                                                   GBP                                                    GBP                                                    GBP 
 At 1 January 2011                                                        (55,702,781)                                           (67,096,269)                                          (122,799,050) 
 Loss for the year                                                                   -                                           (74,698,580)                                           (74,698,580) 
 Fair value movement on 
  effective 
  hedging instruments                                                     (93,297,336)                                                      -                                           (93,297,336) 
 Interest paid on effective 
  hedging instruments                                                       15,527,873                                                      -                                             15,527,873 
 Hedge reserve recycling                                                     (966,445)                                                      -                                              (966,445) 
                                  ----------------------------------------------------   ----------------------------------------------------   ---------------------------------------------------- 
 At 31 December 2011                                                     (134,438,689)                                        (2,616,790,103)                                          (276,233,538) 
                                 =====================================================  =====================================================  ===================================================== 
 
 

The hedge reserve recycling relates to the B2 and C1 interest rate swaps, for which the hedging instruments have been novated but the forecast transactions to which they relate are still expected to occur.

   10.   RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' DEFICIT 
 
                                                                                   31 December                                               31 December 
                                                                                          2011                                                      2010 
                                                                                           GBP                                                       GBP 
Opening shareholders' deficit                                                    (122,749,050)                                              (82,902,534) 
Loss for the year                                                                 (74,698,580)                                              (16,861,190) 
Fair value movement on effective 
 hedging 
 instruments                                                                      (93,297,336)                                              (38,123,761) 
Interest paid on effective hedging 
 instruments                                                                        15,527,873                                                16,144,271 
Hedge reserve recycling                                                              (966,445)                                               (1,005,836) 
                                          ----------------------------------------------------      ---------------------------------------------------- 
Closing shareholders' deficit                                                    (276,183,538)                                             (122,749,050) 
                                         =====================================================  ======================================================== 
 
 
   11.   CONTINGENT LIABILITIES AND FINANCIAL COMMITMENTS 

As at 31 December 2011 and 31 December 2010 the company had given a fixed charge over all its assets, including first fixed charges over its bank accounts, to secure the notes referred to in Note 8.

This information is provided by RNS

The company news service from the London Stock Exchange

END

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